How much tax on lottery winnings will you have to pay in the USA?

If you live in North Carolina or any of 39 other states, you could lose a lot, as Toy McLeod discovered a few days ago.

The Moore County man took a chance on a $20 scratch-off and won a $2 million prize.

He bought his lucky 100X The Cash ticket from the Speedway on N.C. 5 in Aberdeen, pop. 6,350.

When McLeod arrived on Tuesday to collect his winnings, he had the choice of getting the prize:

• As an annuity of $100,000 over 20 years.

• Or a lump sum of $1.2 million.

He chose the lump sum of $1.2 million, but here’s where it got painful.

If you win over $5,000, the IRS taxes lottery winnings at 24%.

North Carolina taxes lottery players and gamblers at 5.25%.

So after the required state and federal tax withholdings were deducted, Toy took home just $858,006.

That’s less than half the advertised prize money, for living in a state that taxes lottery wins.

So where should you live to keep as much of your cash as you can?

Where are the lucky states that allow you to keep your fortune intact?

States that boost winners

In the United States, many states impose taxes on lottery winnings, but there are a select number that are tax havens for prize winners.

If you live in these places, you can keep your winnings, free from state taxes. The full list is below.

California, Delaware, and Beyond

Among the states leading this unique policy are California and Delaware, where lottery winnings escape state and local income taxes.

This policy is different to the majority of the United States where winners often have to pay a large percentage of their winnings to state coffers.

Southern and Western States

The trend extends beyond the Northeast, with states like Florida, Texas, and Washington also providing a tax-free haven for lottery winners.

These states, known for their absence of personal income tax, naturally extend this benefit to lottery winnings, offering a financial oasis in the landscape of tax-heavy laws.

New Hampshire, South Dakota, Tennessee, Wyoming

Not to be outdone, New Hampshire, South Dakota, Tennessee, and Wyoming have also made names for themselves in this arena.

These states, each with its unique charms and attractions, now add 'tax-free lottery winnings' to their list of perks for residents and lucky visitors.

Federal Taxes: The Unavoidable Truth

Despite this state-level tax exemption, winners should remain aware that federal taxes do still apply.

The Internal Revenue Service (IRS) takes some of the lottery winnings for the national budget. This rule is the same in all states.

While these states and territories do not tax lottery winnings at the state level, federal taxes still apply to lottery winnings regardless of the state in which you win.